As hotel profit growth returns, what should RM executives focus on?

Colliers PKF Hospitality Research (PKF-HR) has indicated that the average U.S. hotel will achieve a 2.3 percent increase in net operating income (NOI) during 2010.

Published: 25 Aug 2010

Colliers PKF Hospitality Research (PKF-HR) has indicated that the average U.S. hotel will achieve a 2.3 percent increase in net operating income (NOI) during 2010.

The projection is based on the strong surge in lodging demand that occurred during the first half of 2010.

This follows a 37.8 percent cumulative decline in profits experienced from 2007 through 2009, and is the first annual uptick in forecasted NOI since 2007.

R. Mark Woodworth, president of PKF-HR, said that with occupancy driving the growth in RevPAR in 2010, the rise in profits at this stage is somewhat underwhelming.

“However, going forward we will begin to see a more profitable formula for revenue growth as operators reclaim pricing leverage and room rates begin to rise. That being said, operators must pay attention to the significant increases in operating costs that we've consistently observed during past recovery periods,” Woodworth said.

PKF-HR forecasts double-digit growth in unit-level NOI growth each year from 2011 through 2013.

In the recently released September 2010 edition of Hotel Horizons, PKF-HR forecasts a 4.6 percent increase in revenue per available room (RevPAR) for the U.S. lodging market in 2010. This is the result of a projected 5.2 percent rise in occupancy, but a 0.6 percent decline in average room rates (ADR).

“Our analysis confirms that the sharp rise in demand during the first half of 2010 is partially attributable to the low level of room rates,” Woodworth added.

The projected 5.2 percent annual increase in occupancy during 2010 is based on the strong 7.0 percent growth in lodging demand reported by Smith Travel Research (STR) for the first half of the year, plus the modestly optimistic economic forecast prepared by Moody's Economy.com in July of 2010.

Focus

Recently, in an interview with EyeforTravel’s Ritesh Gupta, London-based Nayan Peshkar, regional director - Revenue Management Europe, Millennium Hotels and Resorts, mentioned that even though 2010 is still seeing residual effects of the rate pressures of last year, RM is better placed to help hotels recover more rapidly.

“Revenue Managers all over the world will need to focus on the basics –market segmentation must be re-evaluated for relevance, analysis needs to now include behavioural aspects as against just transactional ones, competitive benchmarking is crucial to riding the upswing in the markets, clearly defining the way forward in terms of hotel positioning is now more important than ever – decide, state and act upon what gives you success, invest in the right BI and MI and if possible also in upgrading your RM and distribution technology,” Peshkar said.

He added, “Revenue Management has had to adapt to the increased cost focus seen in 2009 – Revenue Managers today need to be able to assign “value” to their sales channels based upon profitability, not just top line numbers. There is also the need for RMs to become more risk management focussed – commercial value of contracts now need to be assigned risk grades. Forecasting activity needs to account for these risk grades as does long term business strategy.”

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